Molson Coors Fights Craft Brew Revolution

Molson Coors (NYSE:TAP) has countered its falling market share in the U.S. with a $3.5 billion deal to acquire European brewer StarBev LP, and thereby access markets in Hungary, Bulgaria, Romania, and the Czech Republic.

The beer industry in the U.S. has been plagued by relentlessly falling volumes over the last three years in the context of rising unemployment and an uncertain economy. To make matters worse, craft beers and imported brews have made significant inroads into the country’s beer market, of which they are now estimated to command an 18 percent share. In this scenario, Molson has seen its top brand, Miller Lite, rapidly losing market share.

“I can understand why they’d want to expand outside the U.S. and why they’d want to get into growth markets,” said Trevor Stirling, an analyst at Sanford C. Bernstein in London. Molson Coors, the maker of Carling lager has “low penetration of craft and imports, which are the fastest-growing parts of the market.”

Molson Coors plans to accelerate its expansion in emerging markets “to maintain the long-term health of our business,” Chief Executive Officer Peter Swinburn said on an analyst call. The company said in the conference call it expects its percentage of sales from markets not counting the U.S., Canada, and Britain to improve to the “mid-teens.”

However, the acquisition has drawn criticism from some quarters, specifically that it covers a mature market offering limited scope for growth. “The region already has a high level of beer consumption per person, with little potential to increase volume,” says Melissa Earlam, an analyst at UBS AG. The Czech Republic has the highest per-capita consumption in the world, according to data from market research company Mintel International.

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